March 19, 2012
There were no deals to report in the construction materials sector in January. That said, a number of the multi-national companies made acquisition overseas, and the battle continues between Martin Marietta Materials Inc. and Vulcan Materials Co. Before one thinks that the lack of deals in January is an indication of a slowdown in merger and acquisition activity, look at possible explanations.
There is always a mad rush in December to get deals done before year-end. Sellers want to preserve existing tax structures, especially in times like these when capital gains tax rates are under attack in the political process. Sellers who deal with seasonality in their business push for year-end closings in an effort to avoid having to carry the winter expenses.
Buyers making tuck-in or bolt-on acquisitions want to get deals done as the new year begins in an effort to incorporate synergies, which often involves consolidation of support functions. That said, once it is determined that the deal will not or cannot close by year-end, buyers often slow-play the deal in an effort to avoid the winter expenses. They will proceed methodically and close in time for the start of the busy season.
These dynamics could easily explain the lack of deals in January, which could mean that the next few months could be busy.
At the same time, the absence of a return of private sector work and continued uncertainty of the future of the federal highway bill suggests that the pace of deals will continue at a slow pace.
At the end of January, House committees began working on an extension of the federal highway bill, which received praise from the industry associations. It appears that the expectation is a multi-year extension at SAFTEA-LU levels. While significantly better than where we were last summer, this level of funding and the continued absence of the private sector means more of the same for the deal business in 2012.